By Jeremy Mullins, Myat Nyein Aye
Dawei, Tanintharyi, Myanmar, October 30, 2015
There is a lone white concrete marker at Dawei’s Kilometre Zero, where storms come ashore from the Andaman Sea and where the long, unpaved road to Thailand begins.
There is little now auguring that the white marker will one day be at the centre of Dawei special economic zone (SEZ), a mammoth project more than one-quarter the size of Singapore. In its entirety it will cost billions of dollars to build, potentially creating hundreds of thousands of jobs and generating up to 5 percent of Myanmar’s GDP.
For now, though, the site is quiet. The nearby forests have been cleared, a few unpaved roads built and the land levelled, but there are only a handful of buildings and even less activity. The magnitude of the proposed zone is difficult to comprehend – even its backers admit the challenge of seeing the development before it is built.
“Imagine a city. Not many people can be patient with it,” said Somchet Thinaphong, managing director of the Dawei Special Economic Zone Project at Italian-Thai Development Public Company (ITD), a concession-holder for the project.
Seeing the entire special economic zone through is as yet no sure thing. Development of Dawei has been beset by challenges such as raising the necessary funding and receiving approvals. Winning the support of local people has also complicated the vision, with many against the project, particularly those who will be forced to move – though others are closer to embracing it.
U Soe Aung, a fisherman in nearby Tha Pot Sate village, said he does not expect to be displaced, but is worried about an increase in port traffic necessitating the exclusion of fishing boats in the areas he fishes. Yet he also sees the potential advantages.
Presently, his catch is rushed to Ranong in Thailand or sent by road to Yangon or Mawlamyine after being hauled ashore. Time is of the essence, and the fish often spoil as there is no canning factory nearby.
If Dawei includes a canning factory, helping fishers get a better price for their catch, U Soe Aung reckons the villagers of Tha Pot Sate will support the project.
Still, he says he is in the dark.
“They don’t come and explain the project to us,” he said. “We have been to their meetings, but they just talk about Dawei region developing, and the road to Asia that will support the whole region.”
“We haven’t heard about a factory for our fish, we’ve just heard about heavy industry.”
Work has now tentatively begun on the initial phase, and authorities say they are trying to be more mindful of these concerns. This initial phase will focus on attracting businesses like garment production and fishing canneries, which provide more local opportunities.
U Han Sein, chair of the Dawei Special Economic Zone Management Committee and deputy transport minister, told reporters the key to the whole project will be winning over the local people.
“Local people will be getting jobs,” said U Han Sein. He added there will be other ancillary benefits, such as the canneries, while improved transportation links with Thailand will allow cheaper imports and more business opportunities.
An earlier false start saw a 2010 memorandum of understanding to build the roughly 200-square-kilometre project between Italian-Thai Development and Myanma Port Authority cancelled in 2013. Many of the same backers are still involved, however, and last month signed another deal to revive the project through building a much smaller initial phase.
Under an August 5 agreement, a 27-square-kilometre industrial zone will handed over to the concessionaires including Italian-Thai Development in four lots. The concessionaires must show they are making progress before each new plot is released, either through a 65pc occupancy rate or a certain number of jobs created, with lots scheduled to be handed over from 2016 through to completion in 2023.
Instead of steel mills and petrochemical complexes, the initial phase envisions light industry and garment factories taking shape. There is no deep sea port in the initial phase, only a smaller jetty, and the previously imagined 8-lane highway to Thailand has been replaced with what will initially be a paved 2-lane road.
Once the initial phase is clearly working, U Han Sein said that agreements can then be signed to build the whole project.
Italian-Thai Development is also responsible for attracting financing for the initial phase. Japan is reportedly interested in the full project but will likely have limited involvement in the initial phase, leaving the concessionaries to find options for initial financing, such as commercial banks and multilateral institutions.
Somchet Thinaphong of Italian-Thai Development has experience in shepherding large industrial projects in eastern Thailand through to fruition. He said that economy of scale in larger projects helps attract developers, an advantage smaller projects do not have.
Financing will come if everything looks bright and functional, with laws enacted and minimal processes involved, he said. In concrete terms, he said there are two fundamental words that will enable the project.
One – the word “land” – means resettling affected people in a responsible, but efficient, way. The other, which Mr Thinaphong called “law”, means more automatic facilitation under the law, making approvals more straightforward.
“If they liberate land and law, money is the easy thing to find,” he said, adding that with concessions that are highly flexible and supportive, “I can sell to any bank.”
Mr Thinaphong also said that in general, large projects must be developed according to a system of values, rather than being purely based on money.
“Otherwise people hit spot by spot, dot by dot – they can never connect the dots … You will never reach your goal if you don’t appreciate what you are doing in terms of value to the people,” he said.
A Special Purpose Vehicle has already been formed between Thailand’s Neighbouring Countries Economic Development Cooperation Agency (NEDA) and Myanmar’s Foreign Economic Relations Department (FERD) under the name Dawei Special Economic Zone Development Company.
U Han Sein said this new company is currently a coordinator, adviser and facilitator, but may also invest in the future as the project develops.
The potential payoff is large, particularly if the entire project is built. Advocates point to Dawei as the missing link for the Southern Economic Corridor, which connects Vietnam’s Ho Chi Minh to Cambodia’s Phnom Penh and then Bangkok. With a Dawei development and road and rail links to Bangkok, the Pacific and Indian Oceans would be connected without the need to pass south through the Malacca Straits.
Locating a business in a special economic zone allows for tax incentives as well as quicker approvals and access to services such as foreign insurance, which are prohibited in the rest of the country.
Alessio Polastri, managing partner at Polastri Wint and Partners legal and tax advisers, said tax benefits for locating in a special economic zone in Myanmar are quite generous.
“Amongst other benefits, a company investing in an SEZ can potentially be tax-exempt for more than five years and pay 50pc of income tax for another quinquennial [five-year] period,” he said.
Mr Polastri added that provisions of the law are secondary considerations, and the key to attracting investors to SEZs is to make sure infrastructure is in place and the SEZ is accessible without an increase in transportation costs.
Dawei is one of three special economic zones planned for the country – the other two are Thilawa, which has already launched, and Kyaukpyu in Rakhine State.
Dawei is the most ambitious of the three. Estimates of price tags have varied significantly for the whole project, though it is clear it will cost billions of dollars.
It is also a different project particularly compared to Thilawa, which is less than an hour’s drive from Yangon. Thilawa, a Myanmar-Japan joint venture, launched its first phase earlier this month. Unlike Dawei, it is close to a large domestic market in Yangon, and millions of potential workers – and is also much further developed.
Mr Polastri said that as of today other SEZs have been proposed or are under development which have more chance to attract investors than the proposed Dawei project, as they have existing infrastructure which will require only an upgrade or some minor improvements instead of complete construction from scratch.
“The vast majority of my clients are not even open to considering the Dawei project at this stage and are more keen on Thilawa or other SEZs which seem to be more reliable,” Mr Polastri said. However, he added that he believes in the Dawei project, as the wider concept “is a magnificent project which may surely boost the economies of the Northern ASEAN countries attracting top-notch investors in the future. But its development may require many more years than expected.”
Alexander Jaggard, country representative at Mekong Economics, said the success of an SEZ lies as much in the regional infrastructure as in location, as they all inter-relate. He added the most obvious obstacle of Dawei’s success is infrastructure, or lack thereof.
“Thilawa has the advantage of being next to Yangon, so transport, infrastructure etc is already there – and if not, relatively easy to bring up to scratch,” he said.
“Dawei is much more isolated, and apart from the sea it does not have many other things it can ride on the back of.” Building the port is a good start and will provide jobs, but is only half the picture and connections to the rest of the region also need to be improved, he said.
“Firms aren’t going to locate [where] they can’t access anything in the country [and] region, so this needs to be thoroughly addressed,” he said.
Mr Jaggard added the southern region of Myanmar is relatively neglected economically in comparison to other parts of the country, and initiatives to improve the prospects should be welcomed. “An SEZ in Dawei would provide local employment opportunities and also improve infrastructure, and would have positive knock-on benefits to the regional economy,” he said.
The Dawei project has faced significant local opposition. Many residents will need to be displaced, and some locals complain of being left out of the decision-making process, with their livelihoods potentially damaged and little offered in return.
U Thant Zin, coordinator of the Dawei Development Association, a civil society organisation which has been vocal about the special economic zone, said the project is far from local peoples’ desires.
“It was initiated by businessmen. They never inform [villagers] prior to the committees. There is no space in the decision-making process. How can the project be people-centred?” he said in an interview. “With proper participation from the villagers, they cannot move ahead. They will face a lot of problems, I think.”
The Dawei Development Association has conducted surveys into local people’s attitudes toward the project. It found that offered compensation has generally been too low, with the new houses poorly built and in an area with less farmland.
Its 2012 report Voices on the Ground highlighted concerns. While it did not specifically oppose the project, it said local people would like to see more transparency and accountability.
In Mudu village, one of the villages likely to eventually be relocated if the full project goes through, residents told reporters they were concerned about the prospect of being displaced.
“This is my native village. My family is settled here,” said one shop owner. “I’m resigned to moving eventually, but I’m not ready for it.”
The villager, who declined to give his name for fear of retribution, said that while he had heard about compensation offers, he is worried the resettlement site in Bawah, on the far side of the special economic zone, will have few money-making opportunities.
“I don’t want money and a house in compensation – I already have that,” he said.
Other area residents say they have not made up their mind. They are mindful of the potential harm, but also keen to see promised economic benefits materialise.
One day, walking past the Kilometre Zero marker may take the pedestrians past the heart of a burgeoning special economic zone, on the scale of China’s Shenzhen or Japan’s Kashima Industrial Zone.
The backers are bullish, pointing to the advantages of the project, the transportation ties to fast-growing Southeast Asia and beyond. Land leases may begin as soon as next year.
Asked what a potential investor should do when sizing up Dawei, activist U Thant Zin said the most important thing is communication.
“It doesn’t matter if the investor is Japanese, or Thai or Indian or American. The investor should be responsible, wherever they come from.”
Whether the investors will come at all to Dawei remains to be seen – a lot of work still needs to happen to make the ambitious project come to light. Whether Dawei will one day indeed provide hundreds of thousands of jobs and 5pc of Myanmar’s GDP by 2045, as consultants Roland Berger claim, remains to be seen.
After initial setbacks the backers say they are again moving ahead with the small initial phase.
“Now is the right time,” said U Han Sein. “In five or 10 years it will be too late.”
“It’s like eating a fruit – you need to take it at the right time. If you take it too early, you cannot eat it. If it’s too old, the taste will not be good and will not be suitable. Now is the right time.”
This story was produced in collaboration with The Mekong Eye and Mekong Matters Journalism Network, with full editorial control to the journalist and their outlet.
(Lead photo: Taylor Weidman, Getty Images)